Managerial Economics

Assignment I

Q 1. The diagram below depicts the demand curve for “mini burgers” in a nationwide fast-food
market. Use the information in this diagram to answer the questions that follows:

a. What is the price elasticity of demand along the range of the demand curve between a price
of $0.20 per mini burger and a price of $0.40 per mini burger? Is demand elastic or inelastic
over this range?

b.What is the price elasticity of demand along the range of the demand curve between a price
of $0.80 per mini burger and a price of $1.20 per mini burger? Is demand elastic or inelastic
over this range?

c. What is the price elasticity of demand along the range of the demand curve between a price
of $1.60 per miniburger and a price of $1.80 per miniburger? Is demand elastic or inelastic over
this range?

Q 2. The demand for petrol rises from 500 kl to 600 kl when the price of a particular scooter is
reduced from Rs. 25000 to Rs. 22,000. Find out the cross elasticity of demand for the two. What
is the nature of their relationship?
Q 3. The demand for a particular brand of readymade shirts is found to vary with the
consumer’s income and its own price in the following manner:

Demand (units) Price (Rs./unit) Income (Rs.)

3000 750 5000

3600 650 5000

4500 650 6000

a. Find out the price elasticity of demand for the shirts when the price falls from 750 to 650.

b. Find out the income elasticity of demand when Income increases from Rs. 5000 to Rs. 6000.

c. By drawing neat diagrams of the above example, explain the difference between the change
in demand and change in quantity demanded.

Q 4. Rijo John has tried to estimate own and cross price elasticities for tobacco products in
India. His findings for own price elasticities are reported in the table below.

Bidis Cigarettes

Rural 0.91 0.41

Urban 0.87 0.17

a. Compare the demand for bidis and Cigarettes in rural and urban areas.
b. Draw neat diagrams for i) Demand Curve ii) Supply Curve iii) demand elasticity iv) degrees of
demand elasticity.
c. The demand for a product priced Rs. 10/unit and Rs. 8/unit is 200 and 400 units respectively.
Compute the point and arc elasticities (with diagram).

Q 5. demand for a particular product was found to change from 1200 units to 900 units
when the income of the consumer fell from Rs. 45,000 to Rs. 41,000. Compute the
income elasticity of demand for the product.

Q 6. A pen company is able to sell 4,200 units of its latest softgel model pen priced at Rs. 14 per
piece. A survey conducted by the company’s research team shows that if the
price of the pen could be lowered by Rs. 2, the company would be able to sell 6,300
units of this pen. What is the price elasticity of demand for the pen?

Q 7. At a price of Rs. 450 per unit, the shoe company generate an additional revenue of Rs. 536
for every one additional pair of shoes sold. Find out the price elasticity of demand for the shoes.

Q 8. Two goods, tea and coffee, are related in such a way that when the price of any one is
varied, the demand for the other also varies. It was found that for consumers who are
used to consume tea, the demand for tea fell from 240 kg to 220 kg when theprice of
coffee was decreased from its current price of Rs. 65/kg to Rs. 55/kg. Find out the cross
elasticity of demand for tea and state the relationship between the two.

Q 9. Advertisements happen to be a very important factor for pushing up the demand for any
product. A company presently sells 7000 units of shoe polish at a price of Rs. 35 per unit. In
view of sluggish demand, it decides to increase its outlay on advertising from Rs. 14 lakh to 24
lakh. If the promotional elasticity of demand for shoe polish is 1.6, find out the new demand for
shoe polish.
Q 10. The demand for a particular brand of readymade shirts is found to vary with the
Consumer’s income and its own price in the following manner:

Demand (units) Price (Rs./unit) Income (Rs.)

3000 750 5000

3600 650 5000

4500 650 6000

i) Find out the price elasticity of demand for the shirts by using all the possible methods.
ii) Find out the income elasticity of demand for the shirts.

Q 11. demand for petrol rises from 500 kl to 600 kl when the price of a particular scooter is
reduced from Rs. 25000 to Rs. 22,000. Find out the cross elasticity of demand for the two. What
is the nature of their relationship?

Q 12. A firm is able to sell 500 units of its product. Its present outlay on advertising is Rs. 2.50
lakh. The promotional elasticity for the firm’s product is 1.65. How much additional expenditure
needs to be done on advertising, if it wishes to increase its sales to 850 units?